6 Biggest Digital Innovations and Trends in Cross-Border Payments 2023
By James Gable, Business Development Manager, Freemarket.
Innovation in cross-border payments is moving at breakneck speeds.
Each day, international transactions are becoming faster, more secure, and increasingly transparent.
Helping the world’s SME’s tap into the global economy and scale their businesses to new heights.
But, for the Fintechs and Financial Institutions who are looking to get ahead of the competition and provide their clients with cutting-edge solutions, what should they be looking out for?
Fortunately, help is at hand.
Here, we’ll explore the 6 biggest cross-border payment trends and the most dynamic emerging markets to look out for through 2023.
So, let’s dive in and explore how international payment providers can capture more market share, enhance their remittance products, and empower their clients.
1. Stablecoins and Central Bank Digital Currencies
It’s no secret that Stablecoins, such as USDC & USDT, as well as Central Bank Digital Currencies (CBDC), much like the Digital Pound, are increasingly edging their way into the fore.
Driving the adoption of real-time payments, bypassing the T+2 to T+4 delays imposed by SWIFT and the legacy correspondent banking network it relies on.
And it’s clear to see that’s it’s become a popular choice.
In 2022, Stablecoin trading volumes are reported to have hit highs of $7.4 trillion, exceeding that of both Mastercard and American Express.
In fact, of the globe’s leading payment institutions only Visa facilitated more transactions, with this figure surging ahead at $12 trillion.
Stablecoins pose a real opportunity to build on their momentum from last year; further supercharging real-time cross-border payments.
Enabling businesses and Fintechs to completely bypass legacy infrastructure and offer their clients an avenue to move funds anywhere in the world, in an instant.
As the use case for Stablecoins has become clearer, we will also see more central banks looking to launch their own fiat-pegged CBDCs in an attempt to retain control over the movement of their currencies. With over 110 countries already reported to be exploring ways they can launch their own.
While slightly behind the Stablecoin curve, CBDCs are tipped to hit over $213 billion in payment volumes by 2030. Up from a forecast of only $100 million in 2023.
Meaning that as the popularity of blockchain-enabled currencies continues, we may not be far away from leveraging state-controlled real-time digital payments.
2. Blockchain vs SWIFT (or both?)
Keeping with the theme, the way blockchain will play its part in transforming the remittance and cross-border payment space in 2023 is hotly anticipated.
At the core of the Stablecoin and CBDC revolution, 2023 will see a greater debate around the future of SWIFT, which has historically relied on a global network of correspondent banks.
The emergence of alternative blockchain-driven international payments - especially considering they were the second highest-volume processor last year - poses a huge problem for SWIFT.
Ultimately, challenging its very existence.
In an effort to retain control over international transactions, SWIFT has been active in piloting its own pioneering interoperability infrastructure. A system through which it aims to enable two central banks to convert and trade CBDCs between them.
However, it is not alone in this process.
It’s here, that infrastructure companies like Red Date Technologies, a China-based Blockchain innovator, are looking to challenge this monopoly through bringing to market their own alternative blockchain-driven global payments system.
Evidence that the emergence of blockchain technology is forcing a re-wiring of the incumbent’s legacy payment infrastructure.
3. Phasing out Legacy Technology Platforms and Introducing AI & Automated KYC
Nvidia notes that through 2022 there was a seismic shift in businesses in financial services investing and adopting AI across their KYC, onboarding functions, and ongoing monitoring systems.
Noting a 329% increase in those deploying AI as part of their KYC and AML checks, and a 310% increase in those leveraging this technology for transaction and payments monitoring.
The motivations for this are evident.
McKinsey estimates that banks lose approximately $15 billion to $20 billion from identity fraud every year, and on the last count were spending up to $8 billion per annum reinforcing their AML controls.
While traditional banks are plagued by legacy infrastructure and endless bureaucracy, Fintechs and more agile payment solutions are well-placed to out-compete their banking rivals when it comes to the adoption of digital processes through 2023.
Being better equipped to leverage AI, and blockchain's distributed ledger technology to further their KYC and monitoring efforts.
As covered recently on the Freemarket blog, by being more agile and faster moving, those that can successfully adopt and refine AI and automated KYC will not only out-compete the banks but will place themselves ahead of their peers.
Helping them increase their bottom line by onboarding faster, identifying fraud sooner, and minimising losses.
4. Non-Resident Indian Remittances
It’s been no secret that emerging markets and developing countries pose the greatest opportunities for Fintechs and payment providers.
Not only is there a tremendous market opportunity to move away from heavily fragmented correspondent banks and establish a digital-first alternative to the legacy infrastructure that dominates these economies.
But there’s also a humanitarian one.
Delivering financial inclusion to the 1.4 billion adults worldwide that are still unbanked, and go without access to financial products, services, or international remittances.
By far the biggest destination for global payments over the last 12 months, and certainly one that is earmarked for continued growth through 2023, is India.
The World Bank tipped India to hit over $100 billion in cross-border remittances through 2022.
Making it one of the fastest growing destinations for cross-border transactions worldwide.
And it’s clear to see why.
The continued emergence of India as the BRIC nation’s second fastest-growing economy (and one that is tipped to out-grow China over the next decade) is ultimately down to the breadth and depth of its talent, and emerging middle class.
With more Indians than ever working abroad in high-salary roles, the opportunity for Fintechs to capture part of this market as those individuals look to remit funds back to their friends and family, is vast.
As with the wider trends encompassing open banking and embedded finance, Indians living abroad will be looking to payment providers to offer quick, frictionless remittance products within their every-day finance and neo-banking apps.
With specialist MSB solutions and legacy banks still dominating the Indian remittance market, those that can successfully capture these clients and offer seamless, digital-first solutions, will be better placed to capitalise on India’s meteoric growth.
5. Africa's Fintech Revolution
Simon Taylor, Co-Founder of 11:FS and Head of Strategy & Content at Sardine, details in his weekly Fintech newsletter the sheer scope of Africa’s cross-border payments opportunity.
Outlining how scaling and unifying payments through Africa will be a continued focus for many domestic and international Fintechs over the course of 2023.
In 2022 alone, $95.5 billion poured into the continent, with this figure set to increase as more people migrate to other parts of the world, and the growth of Africa’s middle-class continues.
The two biggest African destinations were Egypt and Nigeria with $31.5bn and $19.2bn respectively, with all other sub-Saharan countries lagging far behind. Ghana was the best of the rest, receiving $4.5bn, Kenya had $3.7bn and Senegal $2.7bn. - African Business
What makes Africa one of, if not the, most exciting frontiers in international payments, Taylor notes, is the breadth and depth of its culture.
Across the 54 countries that make up the continent, over 2,000 languages are spoken - with Nigeria alone speaking over 500 of these.
And it’s the growth of these demographics that is driving this market opportunity for global payment providers.
Population growth correlates with an increase in the middle class, economic growth, and investment opportunity. - Simon Taylor, Co-Founder of 11:FS
As more individuals begin to earn more, spend more, and have more advanced digital payment requirements, the restrictions imposed by Africa’s fragmented banking systems are being drawn into view.
Ambitious individuals and hyper-growth SMEs across the continent lack the financial infrastructure and support that many in the west take for granted.
Posing a tremendous growth opportunity for innovators who can overcome typically stringent regulatory hurdles to unify remittances across these 54 nations, build a democratised payments infrastructure, and provide Africans with frictionless financial access to the rest of the world.
6. International Payments in LatAm
Cross-border transactions through LatAm are forecast to hit $95 billion by 2025.
While a few years behind India and Africa, these forecasts continue to solidify the continent’s transition away from cash, and position it as one of the fastest growing cross-border markets globally.
In line with global trends, the 2020 pandemic fast-tracked the adoption of digital payment methods - and in LatAm this was no different.
For a continent that has been traditionally dominated by cash payments, 2020 saw a 121% increase in online sales - to the tune of $180 billion.
This adjustment to the new normal is something Ézio Pontes (Head of Operations for International Payments at PagSeguro) earmarks as having laid the foundation for further growth through 2023.
Payment innovations, and cross-border Fintechs emerging from LatAm in recent years have been thriving.
And over the next 12 months are expected to be laser-focused on the continent’s continued shift towards digital wallets, further adoption of BNPL payment methods, and facilitation of Open Banking.
Much like Africa, the banking system across LatAm is fragmented, clunky, and expensive.
Poor liquidity and higher risk ratings mean that it’s often difficult for businesses and individuals across the continent to transact with one another - as well as those across the globe.
Meaning that more than ever, businesses are turning to digital payment providers to help them speed up transactions, access international and local rails, and bypass traditional correspondent banks.
For more insights into the latest innovations across cross-border payments, check out our blog post on Battle of the Banks: Why Cross-Border Payments is the New Fintech Frontier
Reach out to Freemarket today to speak with the team and learn more about how we can fuel your cross-border payment efforts.
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